First quarter earnings season is wrapping up, and the big-name
reports are getting scarce, with this week’s heavy hitters including
Best Buy, Dollar Tree, and Costco. Both the S&P 500 and tech-heavy
Nasdaq composite set records early last week before worries about
growing political uncertainty in Washington, which could hamper
President Trump’s agenda of tax cuts and deregulation, knocked those
indexes back from their highs.

On Wednesday, the Congressional Budget Office
will release its analysis of the health-care bill that passed the House
of Representatives earlier this month. Official Washington will comb
through the score, with partisans on each side hoping it suits their
talking points. The first CBO score estimated that 24 million more
people would be uninsured in 2026, and that number is not expected to
change substantially.

Another number could unravel the whole deal. If
the bill isn’t found to save at least $2 billion over 10 years,
Republicans won’t be able to use the so-called budget reconciliation
process to pass it. Under that process, 51 votes are required to pass
legislation in the Senate, versus 60.

Not saving at least $2 billion
would mean Republicans would have to start all over again by passing a
new budget resolution.

The Trump administration today asked that a major federal court case weighing the fate of the Obamacare cost-sharing subsidies
be put on hold again, leaving billions of dollars in payments to
insurers up in the air for 2017 and 2018. The subsidies are available to
low-income Americans who buy individual health insurance on the ACA
exchanges.

In the meanwhile, insurers that are trying to set premium
rates for insurance plans to be sold in 2018 are running up against
deadlines and have repeatedly asked Congress to fund the subsidies
during the transition.

Tomorrow, the White House is scheduled to release Trump’s first full
budget. A president’s budget is a wish list, and many of the proposals
in it may not become law.

Also Wednesday, the Fed will release the minutes
of its May 2-3 meeting. Over the last few week, labor market and
inflation data have sent contradicting signals. The labor market
supports the hawkish Fed stance. Employment rose 211,000 in April from a
wobbly showing in early spring and the unemployment rate dipped to
4.4%, matching the lowest level since May 2007.

On the other hand, core
inflation data was soft in both March and April. Today, Dallas Fed
President Rob Kaplan said he still expected two rate hikes this year.
Perhaps more important than the timing of the next rate hike is what the
Fed plans to do about its balance sheet. Chair Janet Yellen and other
top officials have claimed for some time that they are eager to begin
reducing their nearly $4 trillion in US government and mortgage debt.

And while this may be true at the margin, the truth is that though many
of them may make noises about reducing the size of the balance sheet, a
sizable and probably most of the Fed officials believe the massive
balance sheet is here to stay — indeed, most of them schooled in the
modern central banking theories believe a rather large balance sheet is
now an essential part of monetary policy.

More than one Fed official has
indicated that even a “normal” balance sheet as they currently envision
it could total about $2 trillion worth of government and/or housing
debt.

President Trump visited Saudi Arabia over the weekend and sealed $110
billion in arms deals with the Saudis, with options running as high as
$350 billion over 10 years. Shares of defense firms General Dynamics,
Raytheon, and Lockheed Martin all hit record highs before easing to
trade up between 0.6 percent and 1.6 percent. Boeing was up 1.5 percent
and the biggest boost on the Dow.

Blackstone
and Saudi Arabia’s main sovereign wealth fund, the Public Investment
Fund, signed a non-binding memorandum of understanding to create a $40
billion vehicle to invest in infrastructure projects, mainly in the
United States. Blackstone said it expected the vehicle to have $40
billion of equity commitments, with a $20 billion anchor investment from
the PIF and the rest of the money obtained from other investors.

Through this equity and debt financing, Blackstone expects to invest in
over $100 billion of infrastructure projects. Today, Trump visited
Israel. Next up, the Pope.

Oil prices moved higher on rising confidence that top exporters will
this week agree to extend supply curbs, or even deeper cuts. However,
energy companies lagged. Iraq announced this afternoon, that it will
back a proposal from Saudi Arabia and Russia to extend output cuts for
nine months, removing one of the last remaining obstacles to an
agreement at the OPEC meeting in Vienna this week.

Iraq, the second
largest producer in OPEC, has the worst record of compliance with its
pledged cuts, pumping about 80,000 more barrels of oil a day than
permitted during the first quarter.

The Supreme Court
delivered a unanimous decision on where patent lawsuits may be filed, a
setback to patent trolls, or companies that buy patents not to use them
but to demand royalties and sue for damages. Such companies have often
sued in remote federal courts that have a reputation for friendliness to
plaintiffs.

More than 40 percent of patent lawsuits, for instance, are
filed in a federal court in East Texas. In recent years, a single judge
based in Marshall, Texas, oversaw about a quarter of all patent cases
nationwide, more than the number handled by all federal judges in
California, Florida and New York combined. The decision was a victory
for big technology companies and other patent holders, which have
complained about what they called forum shopping in patent cases.

The
case, TC Heartland v. Kraft Foods raised the question of whether
companies could sue essentially anywhere their products are sold, or in
the jurisdiction where it resides. Today’s Supreme Court decision won’t
eliminate patent trolling but it will probably limit the practice.

A divided U.S. Supreme Court rejected two North Carolina congressional districts, saying
Republican lawmakers relied too heavily on race when drawing them. The
gerrymandered voting districts were used until the 2014 election. The
case produced an unusual split: Justice Clarence Thomas, perhaps the
most conservative justice, joined the court’s four liberals in the
majority.

Ford Motor replaced its chief executive, Mark Fields, and vowed to
catch up in the race to build self-driving cars and define a new era in
personal mobility. Jim Hackett, who had overseen the Ford subsidiary
that works on autonomous vehicles, immediately takes over as the new
CEO.

Fields came under fire from investors and the company’s board for
failing to expand the company’s core auto business and for lagging in
developing the high-tech cars of the future. But for a Ford CEO, stock
price is Job One; Fields’ biggest transgression during his 3-year
tenure as Ford CEO was a 40% drop in Ford’s share price.

Hackett said
the board had given him a free hand to transform the nation’s No. 2
automaker, including seeking alliances with Silicon Valley firms,
changing its product lineup, and divesting itself of unprofitable global
operations.

US-based Huntsman
Corp. and Switzerland’s Clariant are combining to create a chemical
manufacturer with a market value of more than $14 billion. The deal
creates a global specialty chemicals company that is 52% owned by
Clariant shareholders and valued at about $20 billion when including
debt. Clariant makes aircraft de-icing fluids, pesticide ingredients,
and plastic coloring. Huntsman makes chemicals used in paint, clothing,
and construction.

In the past 30 days, about 40 percent of the Midwest got twice the amount of normal rainfall,
with soils saturated from Arkansas to Ohio. While spring showers
usually benefit crops, the precipitation has come fast enough to flood
some corn and rice fields and trigger quality concerns about maturing
wheat. Bad conditions got worse with rain on Friday. There are lakes in
some fields.

Planting was off to a fast start in the second half of
April, before 10 inches of May rainfall and lower temperatures erased
early optimism. Corn and wheat are headed for monthly gains on the
Chicago Board of Trade while rough-rice futures are headed for the
biggest such advance in six years. Even with the challenges, farmers
have made speedy work of planting.

U.S. sowing of corn, soybeans and
spring wheat was ahead or even with the five-year average as of May 14,
while corn emergence was behind schedule.

For years, Citigroup
employees suspected that millions of dollars that the bank was moving
to Mexico might be suspicious. Yet the bank failed to sufficiently alert
regulators or step up its monitoring for money laundering. From 2007 to
2012, the banking unit generated about 18,000 alerts of suspicious
transactions among the 30 million Mexico remittances it processed, yet
the bank conducted fewer than 10 investigations.

Today, Citigroup agreed
to pay $97 million to settle an investigation into Banamex USA. In
exchange, the Justice Department will not charge the bank criminally for
the misdeeds of Banamex USA, based in California.

After 146 years, the Greatest Show on Earth, Ringling Bros. and Barnum & Bailey Circus
took its final bow. An army of circus performers and technicians end a
tradition that first had its roots in 1871 under showman P. T. Barnum.
The circus animals, lions, tigers, and bears will be sent to sanctuaries
or to work in European circuses.

And if you’re looking for the clowns,
well you can find a reasonable facsimile in Washington DC.

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